Allianz Global Investors, in collaboration with FMO Investment Management and the MacArthur Foundation, has introduced their SDG Loan fund to the market with over $1bn in private capital already committed via an innovative ‘blended finance’ model.
Investors in the fund – including Allianz, FMO and Skandia – will be able to co-invest in a portfolio of high-impact, SDG-aligned loans to local companies and projects in Latin America, Africa, Asia and Eastern Europe. The primary focus is on economic growth, equality and climate (SDGs 8, 10 and 13 respectively).
The fund’s structure also includes a ‘first-loss’ investment from FMO and a partial, unfunded guarantee of $25m from the MacArthur Foundation. These credit enhancements are designed to mobilise capital from institutional investors who would not customarily be able to finance high-impact loans in emerging and frontier markets.
“The perception of elevated risk of investing in emerging markets – which is often not correlated with actual risk levels – can be daunting for institutional investors. For us blended finance is an innovative financial instrument to accelerate the allocation of funds to these areas on a larger scale,” said Allianz Group chief investment officer, Carsten Quitter.
“The SDG Loan Fund reaching over $1bn of commitments is a great example and strong signal to the market of how to crowd in institutional capital in size.”
According to the OECD, developing countries are in urgent need for capital to reach the SDGs. In 2020, that gap stood at $3.9trn, but that increased by 56% after the outbreak of Covid-19.
Once fully invested in approximately 100 high-impact loan participations, the Fund’s investments are aiming to avoid approximately 450,000 tonnes of CO2 equivalent of greenhouse gases per annum, according to FMO’s historical experience and analysis.
“The capital pooled together through this blended finance structure is a demonstration that a shared vision to address the SDGs can result in finding solutions for very different types of investors,” said Nic Wessemius, managing director at FMO Investment Management.
“The fund will allow FMO to provide more capital to its customers, supporting our shared mission to enhance local prosperity in developing countries globally. We are confident that together with Allianz Global Investors, we will ensure the Fund’s success in selecting and managing an impactful portfolio.”
Deborah Schwartz, managing director of impact investments at the MacArthur Foundation, added: “The MacArthur Foundation is proud to harness our long experience with impact investing and guarantees in support of the SDG Loan Fund. By filling critical funding gaps an fuelling economic, environmental and social benefits for tens of thousands of small businesses, families and communities, the Fund will demonstrate the power of catalytic capital to unlock investment and impact that would not otherwise be possible.”
